Problem Set #3.

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Presentation on theme: "Problem Set #3."— Presentation transcript:

2 Instructions Put away you pen and pencilsPut your name where it says “Graded by:”We will grade questions 1 and 4After grading each question, write in their score in the blank. ex: ( ____/5)Follow the directions explicitly!

5 5 Point Total B. Law of Diminishing Marginal Returns2 Points- Definition (As additional inputs (workers) are added to fixed resources, the additional output generated by each new input will eventually fall.2 Points- Example showing that MARGINAL PRODUCT (additional output from each new worker) will eventually fall1 Point (Clarity)- Numbers in example (numbers show how marginal product eventually falls)

6 5 Point Total C. Fixed, Variable, and Total Costs1 Point- definition of fixed costs (costs that DO NOT change with the amount produced)1 Point- Example of a fixed costs/resource1 Point- definition of variable costs (costs that change with the amount produced)1 Point- Example of a variable cost/resource1 Point- Example showing that Total cost equals fixed plus variable. (Numeric example)

7 D. Economies of Scale and Diseconomies of Scale5 Point Total1 Point- definition of Economies of Scale (area of LRATC where ATC is decreasing)1 Point- Example of Economies of Scale1 Point- definition of Diseconomies of Scale (area of LRATC where ATC is increasing)1 Point- Example of Diseconomies of Scale1 Point- Clarity of examples

8 2.a. Tony’s Hat Store 2 point for completing the chart2 point for completing the graph2 point for completing all definitions4 points for answering all questionsEach point(s) are ALL or NOTHING

12 2.c. MP and MC2 points for Explaining that the Marginal Product curve is a mirrored image of the Marginal Cost Curve. As MP increases MC Decreases and as MP decreases, MC increases.1 point for stating that the shape of the curves are because of the Law of Diminishing Marginal Returns.2 points for showing the MC curve using numerical examples

13 Why is the MC curve U-shaped?The additional cost of the first 13 units produced falls because workers have increasing marginal returns.As production continues, each worker adds less and less to production so the marginal cost for each unit increases.WorkersTotal ProdMarg ProdTotal CostMarginal Cost-$2015$3010/5 = $22138$4010/8 = $1.253196$5010/6 = $1.6423$6010/4 = $2.525$7010/2 = $526$8010/1 = $10

17 Question #3B 5 point total1 point for stating an increase in the price of an input (styrofoam) will increase resource costs (MC increases or supply decreases)2 points for stating that an increase in variable costs will increase the MC, ATC and AVC curves.1 point for stating that an increase in a fixed input (rent) will NOT change the MC curve1 point for stating that an increase in fixed costs will increase the ATC and AFC only.